Last year proved to be a positive one for the OSV market. Not only did working utilization rise, there was a marked increase in offshore investments, which led to a surge in vessel demand, boosting dayrates alongside utilization. The year also marked a potential new cycle for OSVs driven by these favorable market conditions, putting vessel owners in a stronger position. This also coincides with the number of laid-up assets at an all-time low, with several being reactivated to support demand.
Here, we examine the market trends that defined 2023 in further detail, with a look at how these emerging developments will impact the sector moving forward.
Increased vessel days coincide with an uptick in working utilization
Working utilization rose by three percentage points (year-on-year) in 2023 compared to 2022 when taking the full global fleet, including laid-up vessels, into account. As was the case in 2022, marketed utilization peaked in the summer (August) at 54% (51% in 2022) before falling towards the end of the year, only marginally ahead of the 2022 level at 49% compared to 48%.
An examination of vessel days also shows an increase in 2023 compared to 2022, with each quarter last year surpassing the previous year's. The third quarter, as with the highest working utilization, also had the most vessel days, with a 5% increase year-on-year.
Vessel days in the OSV segment have been led by increased oil and gas activity and sustained interest in the wind industry. In addition, the stability of crude oil prices over 2023 (averaging US$ 77 for the year) favors good market conditions and increased dayrates.
Due to these favorable market conditions, some main market players are strategically refocusing on their core business by divesting, making new acquisitions, and relocating their fleets.
Strategic moves in a boiling-hot market
In a year marked by acquisitions and market consolidation, three distinct player groups emerged.
Group A: Strengthening Positions - This group comprises players looking to take advantage of favorable market conditions and strengthen their position in the sector. They have strategically consolidated through multiple acquisitions, with the most notable example being Tidewater’s acquisition of the Solstad fleet.
Group B: Strategic Refocusing - This second group of players, which have likely been bearing too much debt, have opportunistically divested some assets. This move aimed to consolidate their presence in their core markets, as shown by the example of Vroon and Solstad.
Group C: New players - This final group comprises new entrants such as Capital Offshore and AD Ports, which have strategically penetrated the offshore market.
Most impactful acquisitions of 2023
Britoil strengthens and strategically refocuses following Vroon fleet acquisition
In January, Vroon announced that the owning family would lose its controlling interest and wind down its offshore fleet of 40 vessels, including PSVs, AHTSs, and SOVs. In all, Vroon managed a total of 76 offshore vessels and 34 deepsea vessels. Britoil acquired the fleet and, in doing so, strengthened its position in the market.
Solstad and Tidewater reinforce their positions in specific sectors of operation
Last March, Solstad and Tidewater made a significant announcement. Tidewater purchased Solstad's PSV fleet, totaling a backlog of $620 million. The acquisition comprised 37 PSVs: 27 of which have a clear deck area exceeding 900m2 and were valued at around $480 million. The remaining 10 PSVs have a clear deck area below 900m2 and were appraised at approximately $140 million.
AD Ports Group purchased 10 offshore vessels from ENAV
The UAE-based company announced the acquisition of 10 support vessels for about $200 million to uptake operations in the Middle East and Southeast Asia. The operation included MPSVs, PSVs, DSVs, and accommodation workboats trading in Southeast Asia and the Arabian Gulf. Five large PSVs will remain under ENAV ownership, including the four currently in Mexico. This is the first offshore vessel owned by AD Port Group to strengthen its position in the Middle East and South East Asia.
Capital Maritime and Evangelos Marinakis enter the offshore market with 7 PSVs
Evangelos Marinakis, the Greek shipowner and founder of Capital Maritime Group, has acquired the full fleet (seven PSVs) of Standard Supply for about $106 million to launch Capital Offshore. The first vessels have been delivered, and the remainder are set to be delivered during the first quarter of 2024.
Time to Go Green
In 2023, OSV owners reiterated their dedication to electrification through battery systems (ESS) and shore power. The Middle East-based company Vallianz Offshore made a significant step by deploying the first vessels equipped with an ESS. The RAWABI 29, delivered in mid-2022, commenced its maiden contract in February 2023, while the RAWABI 324, retrofitted in 2022, resumed operations in January 2023.
Despite positive steps, there has been a slowdown in electrification in 2023 compared to 2022. The rising cost of inflation can partly explain the reduction of investment in new technologies. But it is also the case that the favorable market conditions outlined previously have also pushed up the utilization factor of the main players. Because of this, they have had limited opportunity to spend time and money on retrofitting.
A pause in LNG development and a move towards new alternative fuels
While LNG dominates the offshore industry's alternative fuel market, no newbuilds or conversions with LNG capabilities are in sight, marking a step back in LNG development. In fact, the latest announcements for new units were from Island Offshore for the Contender and the Crusader back in late 2020 and 2021.
The benefits of LNG fuel are difficult to assess due to potential methane slippage from engines that worsen the GHG emissions from the vessel. Methane is a pollutant 25 times more potent as GHG than CO2. Additionally, mainly in Europe, the Ukrainian war limited LNG supply and drastically increased its price.
OSVs are still waiting for a turning point for alternative fuels and ammonia
While the industry awaits the tipping point towards the use of alternative fuels, there have been some notable developments in this area. FFI Green Pioneer is the first PSV retrofitted with an ammonia-to-power solution. The solution is not yet fully operational, but the industry highly expects its roll-out after its exhibition at COP28.
Meanwhile, in 2023, Green Ships and Bourbon Horizon signed a MoU with Amogy, a provider of ammonia-to-power technology, to deliver two PSVs with the option for a third. The innovative design of these units will integrate an ammonia-to-power solution.
The support of the industry value chain will be essential to produce, bunker, and certify these combustibles on a large scale. Also, to observe real benefits, alternative fuel needs to be produced from renewables, which remains a challenge, especially regarding traceability for vessel owners.
The industry is pushing for more eco-friendly vessels, but no contractual constraints exist. Specifically regarding alternative fuels, strong support for the entire value chain is needed. For example, new bunkering facilities need to be supported by port infrastructure. Likewise, emissions reduction incentives must come from all actors of the industry value chain: owners, operators, suppliers, and regulators.
The market is still looking for the right alchemy regarding emission reduction technology. However, by emerging from 2023 in robust shape, the offshore industry has a unique opportunity to pursue its emissions reduction commitments.
The Ghost OSV (AHTS & PSV) Fleet
Just 22% of the global laid-up OSV fleet is laid up - a decrease of 28% since 2021. Currently, the majority of laid-up vessels are lower-spec vessels. The higher-spec vessels benefit from a higher utilization rate. It is the higher spec fleet that has seen vessel owners place the most attention on reactivation and, in 2023, proved the best investment opportunity in a tight market.
The OSV fleet currently consists of 4,160 vessels, with 943 being laid-up. The number of laid-up vessels steadily decreased from 1,369 units in Q1 2021 to 1,053 units in Q4 2023, with a further 10% drop since then.
Many OSVs have been laid up for more than five years (deep laid-up), and their potential re-entry into the market remains uncertain. The prevailing market conditions do not support the substantial investment costs required to reactivate this dormant fleet, considered less attractive due to lower specs and low fuel efficiency. The owners face a financial dilemma as scrapping those vessels requires additional costs and acknowledging losses in their books. Consequently, a status quo has emerged; the deep laid-up fleet will likely remain inactive, awaiting better market conditions to be scrapped.
The OSV (AHTS and PSV) market is poised to remain robust in the near term, with key players strengthening their positions in what is set to become an increasingly competitive marketplace. Furthermore, while green technologies are making significant strides, there remains a long journey ahead, especially when it comes to developing sustainable fuels. In time, we can expect to see more newbuild orders and retrofitting examples hit the yards to accommodate new fuel technologies.
In the meantime, however, the current fleet will continue to face the dual pressures of an ever-busy oil and gas sector alongside the flourishing wind industry. All of these positive market factors combine to create a new normal which charterers must adapt to. With no newbuilds planned for the near term, the market will have to adapt and relax mandatory age restrictions in vessel tenders and accept higher asset dayrates.
Additional reporting by Sarah McLean